Uzbekistan: New Currency Rules Stoking Economic Anxiety

A digital billboard in Tashkent advertises the March 6, 2012,
official Uzbek-sum-to-US-dollar exchange rate, which now stands almost one
year later at 2,016 sums per US dollar. Following recent new rules
restricting the sale of foreign cash to the public, the black market rate
in Uzbekistan seems to have stabilized with the dollar now changing hands
at between 2,600 and 2,700 sums. (Photo: Joanna Lillis)

Following a tumultuous roll out, the signs coming out of Uzbekistan suggest that citizens are coming to terms with new regulations restricting the sale of foreign currency. But grudging acceptance of the currency rules doesn’t signal that popular anxiety about the country’s economic future is abating.

The exchange rate of the national currency, the sum, took a wild ride on the black market immediately after the new rules were introduced February 1. The sum at first lost over 10 percent of its value and then shot back up, peaking at about 10 percent higher than what had been a relatively stable black-market rate. Over the past few days the black-market rate seems to have settled, with the dollar now trading at between 2,600 and 2,700 sums – roughly the same as prior to February 1. The Central Bank’s official exchange rate is 2,016 sums per dollar.

To the relief of many, the rules do not seem to be affecting the transfer of remittances from migrant workers abroad, which account for a sizable portion of the country’s economy. The International Labor Organization estimates that remittances to Uzbekistan from Russia topped $2.1 billion in the first half of 2012. According to the Uzbek State Statistics Committee, the country's GDP stood at 41.7 trillion sums over the same period ($16 billion at the black market rate). That means remittances from Russia alone account for approximately 13 percent of GDP, though independent economists often say official Uzbek statistics should be treated with skepticism. Tashkent does not disclose information on remittance inflows.

Sources who have received money from labor migrants abroad tell EurasiaNet.org that they have had no problem claiming dollars wired to Uzbekistan using bank transfers, or Western Union-style systems such as Unistream.

The latest government moves to regulate foreign currency circulation were seen by some observers as an attempt to protect the country's foreign exchange reserves. According to the State Statistics Committee, the country's foreign trade surplus fell over 50 percent between 2011 and 2012. Others saw the moves as an attempt to crack down on the booming black market.

Even though black-market currency dealers are not flogging dollars or Russian rubles as openly as they had in the past, it is still possible to find them in their usual spots near markets and other busy areas, despite a general nervousness following arrests in Tashkent earlier in February. One dealer at Tashkent's central Oloy Bazaar was furtive, pretending to sell apples from a cart while toting a black garbage bag stuffed with sums.

Legally, under the new regulations Uzbek citizens can now buy dollars or other foreign currencies only by producing two bank cards: one card holding enough Uzbek sums to buy the foreign cash (with a $2,000-equivalent limit per quarter); the other card must be an international MasterCard or Visa card denominated in foreign currency, which Uzbek banks issue for a fee. These international cards can only be used abroad or online.

The changes theoretically offer Uzbek citizens more opportunities to get hold of foreign currency. Previously, they were rarely able to obtain cash legally, because black market traders would buy up the limited supplies at banks and sell them at a profit. But the inability of citizens to hold cash remains a source of concern, given the government's track record of predatory fiscal practices.

A clerk at Kapital Bank in Tashkent says that Uzbek citizens who wish to purchase foreign currency have to apply for dollar-denominated international debit cards, which take two to three days to issue (and must be issued by an Uzbek bank). Then they must produce this “international” card along with the sum-denominated card (which is for domestic use only) at the bank's currency conversion department, which is responsible for currency transactions.

The clerk confirmed that these foreign-currency-denominated cards could only be used to make purchases online or abroad. Both transactions command hefty service charges. Privately owned Kapital Bank charges a 5 percent commission for using the cards. It also limits cash withdrawals to the equivalent of $100 a day. Similar terms are offered at other commercial banks, such as the state-run National Bank of Uzbekistan for Foreign Economic Activity (NBU) and private Ipak Yuli Bank.

Inquiries in several bank branches outside the capital indicated that confusion surrounds the process in outlying areas. An NBU cashier in one Tashkent suburb said the bank did not have processes in place to cope with the new regulations, adding that a currency conversion department still needed to be set up. Sales of foreign currency are thus suspended at some regional banks.

Editor's note:

Murat Sadykov is the pseudonym for a journalist specializing in Central Asian affairs.